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More Factory Work Means Gains for Made-in, Sold-in China

Stocks in this article: HMC WHR KFT AAPL GPS

TAIPEI ( TheStreet) -- It's not over yet for the world's biggest collection of smokestacks.

Although China has been on a jag for the past two years to stimulate domestic spending as an economic engine after decades of dependence on manufacturing, HSBC's November purchasing managers index (PMI) came in above 50 for the first time in more than a year.

Anything above 50 means the manufacturing sector grew. So the November finding of 50.4 signals that something is right again with the classic foundation of China's economy.

Much of that foundation is foreign invested, notably from Japan, South Korea, Taiwan and the United States. Pick a company you've heard of and it's probably got a China factory.

China has traditionally relied on manufactured exports, from toys to PCs, to grow its economy. Factories run by the likes of Honda Motor (HMC) and Whirlpool (WHR) would hire a cheap yet competent workforce, saving money -- yet pumping it into the local economy -- to spin out umpteen-thousand thing-a-ma-jiggers for Europe and the United States.

Just when China was beginning to look like Planet Lorax with all its smokestacks, problems stemming from the global financial crisis weakened consumer demand for manufactured stuff in the country's major overseas markets. That's one reason China's economy is forecast to grow just 7.5% this year, not 9% to 10% as in the past, though economists say the dip is merely cyclical.

At the same time, some foreign investors had found profits thinning as labor costs went up along with the prices of land and raw materials in China. Chinese leaders are also pushing for a cleaner economy as well as one that depends less on the rest of the world.

But domestic consumption slid from 1992 to 2010 from more than 60% of GDP to less than half, according to the International Monetary Fund. Time to let exports back into the mix?

A PMI of 50.4 would mark the first spurt of growth over the past 13 months, HSBC says in a Nov. 22 statement. It had hit a low of 47.6 in August.

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